In this article, Ashima Bhargava discusses how to fire a Director of a company.
Definition of a Director
- According to section 2(34) of the Companies Act, 2013, a director is a person appointed to the board of the company. A Director is a person elected or appointed to the board of directors of the company, who with other directors have the responsibility of determining and implementing the company’s policy.
- As the agents of the company, a director can bind the company with valid contracts with the third parties. A company is a legal entity and it possesses no physical existence. It generally governed by a director. A director is any person who occupies the position of the director and is appointed by the company to handle its affairs.
- The directors are not the servants of the company but actually, they are the officers. As long as the person is duly appointed to control over the company’s business and authorised to contract in the name of the company according to the articles of the company, he functions as a director.
- A company cannot exist if it doesn’t have a director. He is there to see that all the work is being properly managed. He has to ensure that whatever is the company’s strategic objectives and plans which are being set meet the expectations or not.
- The director has to check the progress of all the employees towards achieving the targets and objectives that are set and he is there to appoint or hire senior managers for certain posts like marketing and finance.
So by all this, we can say that a company cannot function without a director.
Types of Directors
Larger businesses and organisations usually have a clear board structure and they are as follows:
- Chairman: He is the person who has the entire hold of the company or an organisation.
- Managing Director: He is often appointed by the chairman to look after the board of directors and oversees the working of the business.
- Executive Directors: They are the directors who look after some specific departments like finance, marketing, etc.
- Non- Executive Directors: They advise the company on introducing new forms of strategy and they also decide the salaries of the Executive Directors.
Duties of a Director
According to section 166 of the Indian Companies Act, 2013, there are several duties that he has to perform:
A director of a company should act in accordance with the articles of the company.
- Whatever rules and regulations are mentioned in the articles of associations and the memorandum of associations. The director has to abide by all these.
A director should act in good faith and work towards the interests of the company for the benefits of its members, the employees, shareholders and all other.
- The intention of the director should be honest. He should not do anything which is against the provisions of the company.
A director should exercise his duties with reasonable care and due diligence and independent judgement.
- A director should see that he is not being negligent in any of his work and his judgement should not be based on the judgements of others. It should be independent.
A director shall not involve himself in a situation where he may have a direct or an indirect interest that conflicts with the interests of the company.
- He shouldn’t do anything which has a direct contradiction with the company, means he should work in the interests of the company.
A director should not achieve or attempt to achieve any undue advantage either to himself or to his relatives, partners or associates. If he is found guilty of the same, he shall be liable to pay the gain to the company which he has used for his own.
- A director should not take any disadvantage of anything in the company. He should do everything with an honest intention.
A director of a company cannot assign his work or an assignment to any other person.
- He cannot assign his work to any other person. He should perform by his own.
A director contravenes with the provisions of this act, he shall be punishable with a fine, not less than one lakh rupees which may extend to five lakh rupees also.
- If he acts against to whatever is given in the clauses of section 166, he will be punishable with a fine.
Liabilities of a Director
The liabilities of a director of a company can arise in many cases:
Breach of fiduciary duty
When a director does something which is against the interests of the company and towards the benefit of a particular employee, it is held to be a wrongful act of a director on account of fiduciary trust.
Ultra vires
The Directors are required to act within the parameters of the memorandum of associations, articles of associations because these lays down what are restrictions which are imposed upon the directors. If any director does not act in accordance with restrictions and act beyond the aforesaid limits is held to be liable and his act is stated as ultra vires.
Negligence
As long as the directors are acting within the prescribed limits of their powers with reasonable skill and diligence as a man of ordinary prudence would do, it is okay but when they fail to perform their duties with reasonable care and because of them if any loss or damage is caused to the company, the directors shall be held liable.
Mala fide acts
Directors are the trustees for money and property of the company. If they dishonestly make the misuse of the property and money of the company for their own interests and make any secret profit in the performance of their duties, the directors having no other choice will have to compensate the company for whatever loss they have incurred to the company.
How to fire a Director of a company
At the end of the day, we know that the power to remove a director is in the hands of the shareholders. All the directors are responsible to the shareholders. They can remove the director even before his tenure his completed unless they are appointed by the Tribunal for the prevention of oppression and mismanagement or a director appointed proportional representation.
Section 169 of the Indian Companies Act, 2013 states the procedure for the removal of the director. Section 169 of the Companies Act, 2013 states that the shareholders can remove the director by passing an ordinary resolution in a general meeting.
This right cannot be taken away by the MOA, AOA, or any document or any agreement.
- According to section 115 of the Companies Act, 2013, a special notice with the intention of removing a director by the specified no. of members of the company has to be passed at least before 14 days before the concerned meeting at which it has to moved excluding the day on which the notice is served and the day of the meeting.(Section 169)
- The company shall immediately, after it has received the notice should inform its members by a notice of resolution in the same way it does at the time of a general meeting.
- If it is not possible for the company to send notice to all the members, it should publish it in form of an advertisement in a newspaper having an appropriate circulation at least before 7 days of the meeting.
- The company should give intimation to the concerned director about his removal by sending the copy of the resolution which is sought to be passed. The director will have the right to be heard on the resolution at the meeting.
- The director can submit his statement in writing against his removal from the company and can also ask the company to notify it to the other members. If the representation of a reasonable length and has not been too late also then the company must-
- Mention in the notice of resolution that the fact of the representation has been received at the annual general meeting.
- Send a copy of the representation to every member of the meeting if the representation has been received before the notice of the meeting.
- If the writing is not able to reach the members of the company because it has been received too late or the company itself made some default in sending it then the representation must be read at the annual general meeting, it is at the discretion of the director. In addition, he can also make oral representation.
Provided that the copy of the representation need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter and the tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is a party to it.
Conclusion
In the present scenario, we see that there are a lot of companies and for every company, it is necessary to have a director or a board of director so that it is able to function properly. The director has to be very disciplined and has to make use of his powers honestly. A director has the responsibility of the all it’s members so if a director does anything which is in contradiction to the clauses mentioned in Section 166 then he will liable and will be subjected to the removal or being fired. So here I have explained the procedure on how to fire a Director.
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